Banking System Considers MSMEs in High Risk Category: Giriraj Singh

Inadequate and lack of timely credit, high cost of credit, collateral requirements, etc. pose hurdles before the Micro, Small and Medium Enterprises, Minister of State, Micro, Small and Medium Enterprises, Giriraj Singh informed Indian Parliament today adding that MSMEs are being perceived as high risk category by Banks.

However, the Government has been running Credit Guarantee Fund Scheme for Micro and Small Enterprises to provide guarantee cover for collateral free credit facilities extended to micro and small enterprises (MSEs), he said.

In addition, to facilitate easy flow of credit to Micro, Small and Medium Enterprises (MSMEs), the Reserve Bank of India (RBI) has issued guidelines in May, 2010, which mandatorily require banks to dispense with collateral requirement for loans upto Rs 10.00 lakh to MSEs. Furthermore, banks have been required by the RBI to have a stipulated growth in the small and micro unit accounts in the country, Singh added.

The Government has set up a Micro Units Development & Refinance Agency (MUDRA) Ltd. which would be responsible for refinancing all Micro-finance Institutions (MFIs), which are in the business of lending to micro / small business entities engaged in manufacturing, trading and services activities. MUDRA has been set up as a NBFC (wholly owned subsidiary of SIDBI), to start with.

Besides, RIDF allocation of Rs 20,000 crore, GOI is also providing a budgetary support of Rs 3,000 crore for creation of a Credit Guarantee Mechanism which will help in extending non-collateralised credit to the target micro units. The Scheme is now being established and it is too early to assess its benefits.